Sanctions hit Sanford-based Federal Trust

May 8, 2008|By Richard Burnett, Sentinel Staff Writer

The government has slapped a series of restrictions on troubled Federal Trust Bank, requiring it to clear regulatory approval before conducting key business operations, from paying bills to expanding its loan portfolio, a new regulatory filing says.

The Sanford-based savings and loan can't sign executive contracts, issue debt or pay any bill larger than $5,000, among other actions, without prior review by the Office of Thrift Supervision, bank officials told the Securities and Exchange Commission.

FOR THE RECORD - **********CORRECTION OR CLARIFICATION PUBLISHED MAY 9, 2008***********An article on Page C3 of Thursday's Central Florida Business section about new government restrictions on Federal Trust Bank misstated the regulatory requirements for paying bills. The bank's holding company, Federal Trust Corp., cannot pay bills that exceed $5,000 without regulatory approval. The bank itself is not restricted in paying bills.**********************************************************************

Federal Trust has absorbed huge losses during the housing and credit crisis and its stock has plummeted to less than $1.25 a share from nearly $10 a year ago. It is the only publicly-traded financial institution with headquarters in Central Florida.

Despite the bank's woes, former top executive James V. Suskiewich took a $2.6 million severance settlement with him when he was ousted last fall.

In one of the new mandates, regulators are now screening all Federal Trust employment compensation agreements and severance payments before they can be adopted, according to the SEC filing.

Chief Executive Officer Dennis Ward, who replaced Suskiewich, would not comment Wednesday. The bank is trying to raise capital through a new stock offering. Ward cited securities laws that limit comments during such fundraising.

Federal Trust's losses have totaled nearly $16.5 million since early 2007, including a $2.2 million first-quarter loss this year. Its loan loss reserves jumped 201 percent and non-performing assets were up 208 percent in the quarter.

Officials cited rising defaults in residential and real-estate development loans during the housing slump. They adopted tighter lending standards and closer scrutiny of development lending to deal with the problems, officials said.

Industry experts said the measures were among the toughest that regulators can enact, short of taking over the bank's operations entirely.

"I can't remember hearing a more severe set of restrictions," said James Gilkeson, a University of Central Florida finance professor and former federal banking regulator. "When you can't go out and make loans, can't increase your deposit base, raise money through bonds, when it's like you can't do anything without approval."

But a growing number of small banks like Federal Trust are wrestling with the housing fallout, said Jack Greeley, an Orlando banking lawyer. Overall, regulators are being much tougher in an effort to head off further trouble, he said.

"None of those provisions on Federal Trust surprise me," he said. "It's just a sign of the regulatory environment we're in now."